The Allen corporation had sales in 2013 of $67 million, total assets of $78 mill
ID: 2740205 • Letter: T
Question
The Allen corporation had sales in 2013 of $67 million, total assets of $78 million. The interest rate of the company's debit is 6.2 percent, and its tax rate is 35 percent. The operating profit margin is 10 percent. Compute the firm's 2013 net operating income and net income. Calculating the firm's operating return on assets and return on equity. Compute the firm's 2013 net operating income and net income. The firm's 2013 net operating income in $6.70 million. (Round to two decimal places.) The firm's 2013 net income is $ million. (Round to two decimal places.)Explanation / Answer
We have
Sales $67 million
Total assets $ 46 million
Total liabilities $ 16 million
Interest rate of company’s debt is 6.2%
Tax rate is 35%
The operating profit margin is 10%
Net operating income = sales * parentage of operating profit margin = $ 67 *10% = $ 6.7 million
Net income = Net operating income – interest – tax
= $ 6.7 million – 6.2% of $ 16 million - tax at 35%
=$ 6.7 million – $ 0.992 million - tax at 35%
= $ 5.71 – tax at 35% = $ 5.71 – 35% of $ 5.71 = $3.71 million
= $ 6.7 million / $ 46 Million = 14.57%
Return on equity = net income / shareholder’s equity
= net income/ (total assets – total liabilities)
= $ 3.71 million / ($ 46 million – $ 16 million)
= $ 3.71 million / $ 30 million = 12.37%
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